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UK growth will nearly halve amid Brexit uncertainty - European Commission

Published 09/11/2016

The European Commission said the UK economy would be hit by Brexit uncertainty
The European Commission said the UK economy would be hit by Brexit uncertainty

Britain's growth will nearly halve next year as Brexit uncertainty takes a bite out of the UK economy, the European Commission has said.

The Commission nudged its UK growth forecast up to 1.9% from previous predictions of 1.8% made in May, but slashed its 2017 forecast from 1.9% to 1% as it said business investment, incomes and spending would slow.

In its Autumn 2016 Economic Forecast, it said the fresh projections reflected " the impact of heightened uncertainty following the referendum and its impact on business confidence and broader economic conditions".

But the Commission said it expects a "mild recovery" in 2018 with growth reaching 1.2%.

In the meantime, inflation - driven in part by the collapse in sterling - is expected to "erode" real earnings growth and lead to a "sharp fall" in real disposable income growth.

The Bank of England earlier this month made major revisions to its inflation forecasts, with consumer prices now expected to reach 2.7% next year, nearly three times the current inflation rate.

That will in turn hit spending, which is set to drop from 2.9% this year to 1.5% in 2017.

Households will have less opportunity to build up a financial cushion, as slower income growth will restrict the amount of money that households can put away for savings, the Commission said.

Business investment, meanwhile, is expected to "decline sharply" by 2.2% next year.

But Britain's trade balance will be supported by a weaker pound, with net exports set to rise 0.4 percentage points.

The Commission said net export growth will partially offset the negative impact that waning domestic demand would have on growth.

It added that net export growth could be Britain's saving grace, helping to drive a mild recovery in 2018, though Brexit-related uncertainty will linger as the UK and EU negotiate their future trading relationship.

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